Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market
Journal of Political Economy, 132(3), 723-771.
Abstract
We provide empirical evidence on the relationship between algorithmic pricing and competition in Germany's retail gasoline market, where algorithmic pricing software became widely available in 2017. Because adoption dates are unknown, we identify adopting stations by testing for structural breaks in algorithmic-pricing markers and instrument for station adoption using headquarters adoption. Adoption increases margins, but only for non-monopoly stations; in duopoly markets, margins rise only when both stations adopt.
Main Finding
Algorithmic pricing adoption increases margins only outside monopoly markets; in duopolies, margins rise only when both stations adopt.
Policy Relevance
The competitive effects of pricing algorithms depend on market structure and rival adoption, which matters for antitrust analysis of algorithmic pricing.
Notes
- Lead article in the March 2024 issue of the Journal of Political Economy.
See Also
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